NexHealth’s $15M Series A: Raising From Operators During COVID | How and Why We Did It

NexHealth’s $15M Series A: Raising From Operators During COVID, How and Why We Did It

In June, we announced our $15M Series A which was led by operators and not your traditional institutional VCs. Since our announcement, I’ve gotten a ton of questions from founders, VCs and job candidates on why we raised from operators, what the fundraising process was like at the start of the pandemic, and how it has been working out.

Operator-led rounds are new in the world of venture, coming into the picture in 2020 with Front’s $59m Series C, which was led not by traditional growth investors, but by a group of operators which included: Atlassian co-CEO and co-founder Mike Cannon-Brookes; Atlassian President Jay Simons; Okta executive vice chairman, COO and co-founder Frederic Kerrest; Qualtrics co-founder and CEO Ryan Smith and Qualtrics co-founder and CTO Jared Smith; and Zoom CEO Eric Yuan. Nikhil wrote a great blog post on the rise of operator investors and how this part of the industry has evolved from super angels recently.

We kicked off our fundraising process in April 2020, probably at the darkest part of the pandemic and we wrapped it up by the end of May. In total, the entire process took us 6 weeks.

While many were severely affected by COVID-19, we were lucky that our business not only held up, but had its best two months ever in March and April. With a ton of uncertainty in the world, I felt strongly that despite the situation we were all facing, we had the foundation to lean in and capitalize on our momentum and the struggles that many of our (PE owned) competitors were facing. I realized that this was the right opportunistic time to build out our teams, processes and systems to position us for an aggressive 2021 and beyond. (Side note: it will always take you much longer to build out your team than you thought it would, so start earlier than you think you’d have to!).

Once I decided to raise, I reached out to Alex MacCaw, co-founder and CEO of Clearbit, for advice. He initially advised me to wait out the pandemic, especially given that we didn’t need to raise having 24+ months of runway. But, I felt strongly this was the time to raise and aggressively go after the market. So Alex introduced me to Josh Buckley. Josh was the founder and CEO of Mino Games and was an early investor in great companies like Rippling and Clearbit. After a few conversations with Josh, we decided to run a process during which we met 20+ firms in just 14 days, all over Zoom.

In the meantime, Josh offered us a term sheet with a strong group of super angels and founders like Des Traynor, Naval Ravikant, Alex MacCaw, Rahul Vohra, and Harry Stebbings. We decided to accept Josh’s term sheet, close out our other offers, and get back to work.

We didn’t initially set out to raise from operators, although I was intrigued by Front’s unusual Series C. After speaking with Josh, who moved faster and with more conviction than traditional VCs, I realized that this is the better, more strategic option for us. Josh and co. brought a level of operating experience and depth that I couldn’t easily see in traditional VCs.

Christoph Janz, NexHealth board member and Point Nine founder, helped strategize the round throughout. Along with Josh Hannah, founder of Betfair and one of our early angel investors, Christoph suggested we structure the round that way. So we turned it into a deliberate operator led round, gave our existing investors their pro rata, and closed out the round.

Fundraising in the middle of a once in a generation pandemic is probably my second biggest contrarian decision to date, after deciding to start the company and dropping out of college during my last semester. Six months into it now, this was one of my best decisions of 2020. Not only did it enable us to triple our user base and revenue, but more importantly, it has enabled us to build out a deep leadership team during a time when many were retreating. Over the past few months, we were able to add some fantastic people to our team:

• Sean Kane is leading our engineering team, coming from early Netflix and Upwork
• Eddie Nguyen is leading our operations team, coming from early Marketo and Optimizely
• Michael Zippiroli is leading our sales team, coming from early BrightBytes and Lendinghome
• Kyle Johnson is leading our growth team, coming from early Patientpop

With this leadership team in place, I’m more confident than ever in our ability to capture the market in the next 2–3 years. (BTW, we’re not done hiring!). My strategy behind our Series A was to build out our systems, processes and leadership team. Lean in while our competitors were retreating. And our Series A did exactly that.

Our Series A capital also gave our team the flexibility to help the SMB healthcare community during this historically challenging time. For example:

• We deferred payments from independent doctors’ offices to help them with their cash flow.
• We offered free telemedicine to our customers and still do!
• We shipped free PPE to customers that needed it to reopen their offices.

In summary:

• Despite the pandemic and lockdowns, I felt strongly about the strength of our business and had a plan for how to spend the money to build out processes, systems, and our leadership team.
• It was a strategically opportunistic decision to focus on growth and market share while our competitors were retreating.
• Josh Buckley and co. moved faster, with more conviction, and brought more operating depth than traditional VCs.

Few lessons for founders:

• Focus on building a great business with real fundamentals, and capital will always come, even when it feels like the world is ending.
• Don’t over optimize the process, optimize for great people you personally have chemistry with.
• Fundraise only when it will serve your strategy, not when you actually need cash to run the business. Most investors don’t want to fund you to keep your business afloat, investors want to fund you to help you grow.

I want to thank Christoph Janz, Adam Lin (NexHealth board member), and Josh Hannah who have been amazing partners throughout the process, helping me both strategize and act as a sounding board. It’s probably too early to thank Josh Buckley, but I’m sure he will be one of the people on our NYSE opening day podium :).

Of course, many thanks go out to my cofounder Waleed Asif, and the entire NexHealth team for staying heads down and executing flawlessly throughout 2020. Without your execution and hard work, my job would have been a lot harder!

Thank you to Mat Kaliski, early NexHealth seed investor, for helping me structure my thoughts and write this post.